The Fuel of Intervention

Macro Perspectives

If we look back through history, major turning points in markets have often been the result of some form of intervention (i.e., policy action or adjustment).

We had intervention last week-the Bank of England stepped in to calm the global interest rate markets by intervening in the UK sovereign debt market.

That reversed the tide of rising global market interest rates, which were threatening global financial stability.

Adding to that, the Reserve Bank of Australia balked overnight and raised rates by just 25 basis points (vs. an expected 50 bps). That is another signal to markets that central banks are acknowledging that rising rates (albeit at low levels relative to inflation) have created a threat to the global financial system.

With the release of that (rate) pressure valve, U.S. stocks (the proxy for global economic health, stability, and risk) had the biggest two-day return since 2020. In fact, it was a two-day return for the record books.

Let's take a look ...

S&P futures are up 5.8% in the past two days.

With that, I've gone through all of the two-day returns on the S&P 500 futures, dating back to 2006, and as you can see in the chart below, a two-day return of this magnitude is rare, and it comes every time at significant moments (vulnerabilities) and fueled by a significant intervention.

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